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Ease of Doing Business & FDI

Shahnoor Wahid
15 Jul 2021 03:10:58 | Update: 15 Jul 2021 03:10:58
Ease of Doing Business & FDI

Bangladesh needs a constant flow of Foreign Direct Investment (FDI) considering the fact that the country offers well developed infrastructure facilities, cheap labor force, lucrative tax policy etc., and yet FDI is not coming the way it is expected by the government. There must be something amiss somewhere. What is it? We may take a look at some pertinent factors that are considered major obstacles on way to attracting more FDI.

FDI position at a glance:
Bangladesh received $2.56 billion FDI in 2020, down from $2.87 billion a year ago, according to the latest data from the Bangladesh Bank. During the October to December quarter of last year, the country received $827.86 million in FDI, which was 14.97% higher than the same quarter of the previous year. Foreign Direct Investment (FDI) has dipped over 11% last year, mostly owing to the pandemic that has affected the world economy since end of 2019.

The cost of setting up a business in terms of delays in getting permission from different government offices is a factor that needs to be looked into if we want to attract FDI. Often foreign investors express their frustration at bureaucratic obstacles they face in getting important documents like land deed, trade licence, TIN, clearance from the department of environment, electricity connection, port clearance of capital machinery and raw materials, water and gas connection etc.

Bangladesh also needs to add more services for possible investors to make doing business lot easier than now. The One Stop Service (OSS) wing of Bangladesh Investment Development Authority (Bida) offered 18 information-related services. Recently it has added 11 more dedicated services on its website in a bid to reach the target of a double-digit spot in the World Bank’s ease of doing business index within the next two years. At the moment, Bangladesh occupies a 3-digit spot.

The present government has been giving a lot of importance to easing the process of setting up and running businesses by foreign investors. In this regard we may recall that Bangladesh Investment and Policy Summit 2016 was held on 24th January to showcase investment opportunity for private entrepreneurs. A group of foreign investors comprising experts on foreign direct investment and industrial and international trade, and policymakers had joined the Summit.

Bangladesh is striving hard to reach the milestone of middle-income status within the shortest possible time. But to reach that target, some obstacles that continue to thwart smooth navigation need to be addressed without further loss of time. The country needs foreign investment in terms of money and technology transfer, which can be possible only if we make the journey of the investors as hassle-free as possible in setting up industries and running their businesses.
In this regard, some inflexible regulatory terms and conditions need to be amended, as many rules and regulations are often found frustrating to possible investors.

The World Bank report “Doing Business 2016: Measuring Regulatory Quality and Efficiency” shows that many other South Asian countries did much better, for example, Bhutan (71) topped the rankings in South Asia, followed by Nepal (99), Sri Lanka (107), Maldives (128) and India (13).  Even Myanmar (167) and Mauritania (168), which were below Bangladesh in the index last year, have moved ahead of Bangladesh now.

The lead economist at the World Bank Dhaka office, Zahid Hussain, perhaps rightly said, “This is a wake-up call for us to inject a new lease of life in regulatory reforms in order to increase the attractiveness of Bangladesh as a prolific investment destination vis-à-vis our international competitors.”

The business community of the country has been asking for a more enabling environment and business friendly policy, which can be ensured through political and macro-economic stability; sound policy and regulatory framework supported by relevant institutions; enforcement of laws and regulations; and building of adequate infrastructure. 

But, despite all these, things concerning private sector investment have not improved in last five years. Very recently Md Farook Hasan, president of BGMEA, said that bureaucracy still remains the big obstacle for investors. They have to run from room to room to clear files from the table of the bureaucrats and as a result of which the country is lagging behind in World Bank’s Ease of Doing Business index.

The business community has made several suggestions including the introduction of a ‘Green Channel’ or one-stop clearance point so that businessmen can quickly complete formalities, and a reduction of the number of documents required by the customs authority. They have recommended a taskforce be formed headed by NBR with delegates representing FBCCI, MCCI, CCCI, customs and port authorities, Health Ministry, Bida, Immigration Department, Environment Ministry, Bangladesh Bank, and the exporters and importers themselves, to help take quick decisions and thus reduce the cost of delays.
They want reform of the taxation system, as many tax provisions are not clearly written and can be wrongly interpreted by the tax officials, creating scope for corruption.

There is further good news for the business community of the country. BIDA is expected to bring vitality back into the work, as it has the power to overcome bureaucratic bottlenecks in implementing investment-related government decisions. This is predicted to be the much-awaited one-stop service centre to expedite the work of the investors.

But the pertinent question is, will the cost of setting up and doing business in Bangladesh decrease substantially after all these projects begin operation? Will the unnecessary obstacles be removed once and for all so that foreign investors may find a safe haven in Bangladesh to invest money and take back their share of the profit?
It is strongly believed that unless and until the attitude of the bureaucrats and relevant officials become friendly and unless existing government rules and regulations are simplified, FDI growth will not happen the way we want it to. 

The writer is Associate Editor at The Business Post.

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